Gates, Ballmer Seek Re-Election To Microsoft Board

Microsoft also reveals that financial and market share problems caused a hit to Ballmer's annual bonus.

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Steve Ballmer will retire as Microsoft CEO in the next 10 months, and some influential investors want chairman and co-founder Bill Gates to follow him out the door. Nevertheless, both Gates and Ballmer are poised to retain their influence into the next CEO's tenure, as both are up for re-election to Microsoft's board of directors.

Microsoft disclosed the move to re-elect Gates and Ballmer to the board in its annual proxy filing, which was made public Thursday. The filing also revealed that Ballmer earned a smaller bonus than he did last year, thanks in part to slow sales of Windows 8 and Windows RT devices, particularly Microsoft's Surface RT tablet.

Ballmer's relationship with investors has always been rocky, due not only to the CEO's perceived failures, such as falling behind Google and Apple in the mobile market, but also his approach to sharing profits. Despite reaping more revenue than most companies over the last decade, Microsoft has paid out smaller dividends than many shareholders would like, a dynamic that has kept the company's stock price relatively static since Ballmer took over.

Gates has enjoyed a better public image of late, with some even calling for the Microsoft co-founder to return as CEO -- a possibility he's ardently dismissed, citing his ongoing commitments to the Bill & Melinda Gates Foundation.

The specific changes they seek are not yet clear, but Microsoft's ongoing reorganization plan has presented several potential targets for shareholder dissent. The proxy filing pointed to many of them in its summary of Ballmer's fiscal year compensation.

Ballmer received total compensation of $1.25 million in Microsoft's fiscal 2013, earning almost $700,000 in base salary and $550,000 in bonuses. This sum represents almost 80% of Ballmer's "target" bonus and was less than the $620,000 he received last year, when he earned 91% of his target incentive.

Ballmer was penalized, the filing implies, because the "challenging PC market" and "significant product launch costs for Windows 8 and Surface" contributed to an 18% decline in Windows Division operating income. Microsoft also linked Ballmer's decreased bonus to the $900 million inventory charge the company took in response to slower-than-expected Surface RT sales and ensuing price cuts.

In addition to pointing out struggles, the proxy statement also credits Ballmer with leading Microsoft to record revenue of $77.8 billion in its 2013 fiscal year. It notes revenue growth in Microsoft's Business, Server and Tools, Online Services and Entertainment and Devices divisions.

Microsoft's filing also revealed that several leading internal CEO candidates earned 100% or more of their target bonuses. Top performers included COO Kevin Turner and Server and Tools leader Satya Nadella. That said, many recent reports suggest Ford CEO Alan Mulally or former Nokia CEO Stephen Elop are the top contenders.

Microsoft shareholders will vote November 19 on the new board of directors. Gates has given no indication he intends to step down, and as the company's largest individual shareholder, removing him would be no easy task; Gates controls 4.5% of the company's stock, and Ballmer, a close Gates ally, owns 4%.

That said, unhappy investors might gain influence within Microsoft, even if Gates and Ballmer continue to hold seats on the company's board. Mason Morfit, president of hedge fund ValueAct, will have the option to join the board in 2014. ValueAct holds around 1% of Microsoft's shares. According to a July report by Reuters, the firm opposes Microsoft's move to make its own devices.

Other than for the public embarrassment, Ballmer really doesn't care about a few hundred thousand being taken off his bonus. I mean, seriously, this guy gets $250 million a year in dividends. Both he and Gates make far more than they are worth. He should take, a dollar a year, the way Steve Jobs did.